Flagstaff Corp. is a U.S.-based MNC is considering establishing a three-year project in

Canada with a US$38 million initial investment.

The firms cost of capital is 13%.

The required rate of return on this project is 15%.

The project is expected to generate cash flows of C$15 million in Year 1, C$20m in year 2

and C$25 million in Year 3, and is expected to have a salvage value of C$30,000,000.

Assume a 10% tax on remitted funds, and a stable exchange rate of $1.33, $1.30 and $1.25

per C$ in years 1, 2 and 3 respectively.

All cash flows are remitted to the parent.

a. What is the amount of US dollars that will be remitted to the parent company year? Hint:

use after tax cash flows.

g. Which rate should be used to discount the cash flows?

h. Calculate the present values of the remitted cash flows.

i. What is the NPV of the project?

j. Calculate the projects break-even salvage value

k. Should the project be accepted?